All posts by Clifford E. Kirsch, Editor

Eversheds Sutherland With more than 25 years of experience, Cliff regularly counsels clients on the design and distribution of investment products including wrap-fee programs and other advisory products, mutual funds, bank collective investment funds and insurance products. He also focuses on issues related to the design and implementation of compliance programs at financial services firms.

SEC proposes service provider oversight requirements for investment advisers

On October 26, 2022, the Securities and Exchange Commission (SEC) proposed new Rule 206(4)-11 under the Investment Advisers Act of 1940 (Advisers Act), which would prohibit SEC-registered investment advisers from outsourcing certain services or functions to service providers without meeting minimum requirements. At the same time, the SEC also proposed certain related amendments to Rule 204-2 under the Advisers Act and Form ADV.

Proposed Rule 206(4)-11 (Proposed Rule) would require investment advisers to conduct due diligence prior to engaging a service provider to perform certain services or functions. It would further require advisers to periodically monitor the performance and reassess the retention of the service provider in accordance with due diligence requirements to reasonably determine that it is appropriate to continue to outsource those services or functions to that service provider.

Read more here.

Recent SEC Settlement Suggests CCOs Have Target on Their Backs

From Brian Rubin and Adam Pollet in Corporate Compliance Insights:

The SEC’s prosecution of chief compliance officers remains a fraught and controversial topic. A recent SEC enforcement settlement with a CCO and a registered investment adviser could raise even more questions about the role of CCOs and what standards the SEC uses in sanctioning them.

Read why here.

Proposed bipartisan legislation aims to clarify the crypto regulatory landscape

New, sweeping bipartisan legislation proposes to define the contours of regulating digital assets and the crypto industry. Among other things, the bill:

  • Gives the CFTC primary jurisdiction over digital assets and exchanges, limiting the SEC’s ability to regulate the industry;
  • Calls for federal and state cooperation in monitoring and regulating the various aspects of the industry, including tax and money transmitter issues; and

Includes a number of measures designed to address cybersecurity and ESG concerns.

Read more here.

California and New Jersey setting the pace in nationwide race to write the rules for crypto

Last week, California and New Jersey both upped the ante in the nationwide race to write the rules for the crypto industry:

  • The California Department of Financial Protection and Innovation published an Invitation for Comments related to issues impacting blockchain and crypto businesses.
  • The New Jersey State Assembly Financial Institutions and Insurance Committee approved bills that would require licenses for digital assets businesses and establish a crypto regulatory scheme.
  • Players in the blockchain and digital asset industry should take advantage of opportunities to help shape the evolving regulatory landscape, such as by responding to the Invitation for Comments.

Read more here. 

DOJ brings first-ever NFT “insider trading” case

The US Department of Justice and Federal Bureau of Investigation announced the first-of-its kind indictment of an “insider trading” scheme involving non-fungible tokens (or NFTs).

  • A former employee of an online marketplace for NFTs allegedly used confidential business information for personal financial gain.
  • The charged individual used new blockchain technologies to conceal the proceeds of the alleged illicit activity.
  • The DOJ brought charges without characterizing NFTs as securities.

Read more here.